Retail bonds allow firms to rustle up extra funding and lessen their reliance on bank lending. They have attracted a high take-up from ordinary investors because the interest rates are better than people can get on savings products, although investors' money is at risk.

Savers have to tread with care, because if you buy company debt via these bonds the money you make back depends on the firm involved not going bust. You are not protected by the UK's Financial Services Compensation Scheme that guards against losses up to £85,000 if the worst happens and the savings provider goes out of business.

Many retail corporate bonds are listed on the London Stock Exchange, which allows you to trade the bonds before the maturity date. This means you can make money early if you sell when they trade higher than the offer price, but you can also lose if the price is lower.

The varying interest rates on retail bonds reflect the amount of risk attached to them - generally speaking, the higher the rate on offer, the higher the risk.

Investors hungry for income while interest rates remain so low have piled into retail bonds - with bigger names ranging from Tesco Bank to National Grid as well as smaller ones selling out issues fast.

However, there are fears that people may be putting too many eggs in one basket, as their investment is dependent solely on one company's solvency.

Buying a corporate bond fund which spreads the risk might be a more suitable option for some investors - but the disadvantages are that you have to stump up fees to the manager, and because there is no fixed redemption date the returns rely on how well the fund performs

Potential tax liabilities are another consideration when buying retail bonds, and investors who are inexperienced in this area should seek independent advice.

Before you decide whether to buy, it is also worth checking the dividend yield on the company's shares to see how it compares with the return on the retail bond.

In the case of Grafton, a building materials merchant which is based in Ireland but listed in London, its dividend yield is 1.62 per cent compared with its retail bond return of 5.5 per cent. Check its latest share price and charts here.

Founded in 1902, Grafton operates in the UK, Ireland and Belgium and has a number of brands including Selco, Telfords, Chadwicks and Plumbase.

The firm says it is looking to raise up to £50million from the bond, with the aim of diversifying its current sources of borrowing.

The minimum investment is £2,000 and the bonds can be bought for £100 each after that subject to a minimum purchase of £1,000. The closing date is July 8, although retail bond offers often end early if they are oversubscribed.

The Grafton bond is expected to start trading on the London Stock's Exchange's bond market on July 15.

Bruntwood owns and manages 110 offices buildings, valued at £891million and leased to more than 2,000 business in Manchester, Birmingham, Leeds and Liverpool.

It is family-owned and run and has operated in the regional property sector for 37 years, during which it has not breached a banking covenant.

The structure of its bond will be different to most recent property retail bond issues, as it will be backed by a secured property portfolio of real estate and other Bruntwood assets.

The majority of retail bonds issued until now have been without security.

The amount of cash Bruntwood hopes to raise has not been undisclosed, but the firm says it wants to diversify its funding base without increasing its overall level of borrowing.

As with Grafton, the minimum investment is £2,000 and the bonds can be bought for £100 after that. The bond offer is due to close on July 17 but may end early.

How do 'retail bonds' work?

The
minimum amount starts at a very low level - sometimes as little as £100
but more usually from £1,000 - and companies use the money raised to
grow or to fund their activities, or reduce their reliance on bank borrowing.

Investors
earn interest on the bonds while they hold them. The bonds run out or
'mature' on a fixed date in the future when all being well you get your
money back.

The London Stock Exchange runs a retail bond market which allows you to buy and sell bonds before the maturity date.

You
can make some money on them early if they are trading higher than the
initial offer price - but you might lose money if you sell when they are
trading lower.

These
'retail bonds' are specifically targeted at small investors and are
separate from the far larger corporate bond market dominated by
institutions.

Other
more niche bonds have been issued by so-called 'passion brands', like
boutique hotel firm Mr and Mrs Smith and healthy fast-food chain Leon
Restaurants.

These
are not tradeable on the stock exchange but can offer higher returns,
especially if you are prepared to accept them in the form of vouchers
instead of interest. One earlier issuer, Hotel Chocolat, even pays out
in boxes of chocolate.

What do you need to know before buying company bonds?

Research all recent reports and accounts
from the issuer thoroughly. You can find official stock market
announcements including company results on This is Money here.

Check
the company's cash flow is healthy. Also look at the interest cover -
the ratio which shows how easily a firm will be able to meet interest
repayments on its debt. This is calculated by dividing earnings before
interest and taxes (known as EBIT) by what it spends on paying interest. A guide to doing investment sums like this is here.

Find
out what the bond debt is secured against, and where you would stand in
the queue of creditors if the firm went bust. This should be included
in the details of the bond issue but contact the company direct if it is
unclear.

Consider whether to spread your risk by buying a bond fund, rather than tying up your money with just one company.

Inexperienced
investors who are unsure about how corporate bonds work or their
potential tax liabilities should seek independent financial advice. Find an adviser here.

If
the interest rate is what attracts you to the bond, weigh up whether it is
truly worth the risk involved. Generally speaking, the higher the rate on offer, the higher the risk.

Before
you decide whether to buy, it is worth checking the dividend yield on
the company's shares to see how it compares with the return on the
retail bond. Share prices, charts and dividend yields can be found on This Is Money here.

Investors should bear in mind that it can be harder
to judge the risk involved in investing in some company bonds than in
others - it is easier to assess the likelihood of Tesco going bust than smaller and more specialist businesses.